In Re Robert L. Mills, Debtor. Robert L. Mills v. Sdrawde Titleholders, Inc., a California Corporation

841 F.2d 902 In re Robert L. MILLS, Debtor. Robert L. MILLS, Appellant, v. SDRAWDE TITLEHOLDERS, INC., a California Corporation, Appellee. No. 87-5960. United States Court of Appeals, Ninth Circuit. Argued and Submitted Dec. 11, 1987. Decided March 2, 1988. Richard N. Grey, Simke, Chodos, Silberfeld & Anteau, Los Angeles, Cal., for appellant. Joseph D. Frascella, Santa Monica, Cal., for appellee. Appeal from the Ninth Circuit Bankruptcy Appellate Panel. Before SNEED, PREGERSON and KOZINSKI, Circuit Judges. KOZINSKI, Circuit Judge: 1 The issue in this bankruptcy case is whether a debtor's failure to make repairs on property subject to a purchase money lien gives the mortgagee a non-dischargeable claim for tortious waste under Cal.Civ.Code Sec. 2929 (West 1974). Background 2 On December 31, 1980, Robert L. Mills purchased the Beverly Hotel, a hotel for low-income transients, from Martin Edwards for $900,000. Before taking possession on March 1, 1981, Mills made a down payment of $100,000, and gave Edwards a wrap-around deed of trust for the balance of the purchase price. When Mills took possession of the property, it was in satisfactory condition and complied with all applicable…

The issue in this bankruptcy case is whether a debtor’s failure to make repairs on property subject to a purchase money lien gives the mortgagee a non-dischargea-ble claim for tortious waste under CaLCiv. Code § 2929 (West 1974).

Background

On December 31, 1980, Robert L. Mills purchased the Beverly Hotel, a hotel for low-income transients, from Martin Edwards for $900,000. Before taking possession on March 1, 1981, Mills made a down payment of $100,000, and gave Edwards a wrap-around deed of trust for the balance of the purchase price. When Mills took possession of the property, it was in satisfactory condition and complied with all applicable codes and ordinances. Edwards subsequently transferred his interest in the property and deed of trust to Sdrawde Titleholders, Inc.

Mills made his monthly payments on the deed of trust for only three months, defaulting on June 1, 1981. He claims that he spent an additional $3,000 per month on maintenance during that period. He thereafter ceased making payments on the deed of trust or for maintenance, although he did tender several checks to Edwards on which he subsequently stopped payment.

Sdrawde instituted an action in state court for…

dissenting:

I believe the majority opinion misconstrues the case law relating to bad faith waste and consequently reaches the wrong result in this case. In this case, the trial court found that the debtor acquired the subject property — a residential hotel for transients — in good condition and in compliance with applicable codes and ordinances. (Tr. Ct. Finding # 11) The trial court also found that Mills was an experienced owner-manager of commercial property who “understood the requirements for regular maintenance, operation, and management of the premises.” (Tr. Ct. Find. # 12-13) Yet by the time the deed was foreclosed, the hotel had deteriorated to such an extent that 48 of the 67 rooms and several of the communal bathrooms, hallways, and stairways violated state and city housing laws, the county fire department had cited the building for various code infractions, and the hotel had become infested with rodents, cockroaches and other vermin. (Tr. Ct. Finding # 17) Nonetheless, the majority reverses the trial court’s conclusion, upheld by the BAP, that Mills’ utter failure to maintain the property constituted bad faith waste, rendering his debt nondischargeable. I…